Impending Inflation 2010
If you think that interest rates are going up for any reason including inflation, you should buy something at
low interest rates using as much leverage as you can get. Buy a million dollar home whose price has
deflated (dropped way down) and if inflation comes, you will have a smaller debt to pay back while the price
of the home will soar.
Example. In 1920 person ABC in Germany had 33 million Marks in his bank account. He kept it there.
Person XYZ invested his 33 million Marks on a down payment for a 330 million Mark home. After the
hyperinflation was over, person ABC had enough money to buy a postage stamp and person XYZ had a very
nice home and a mortgage which he could easily pay off because it was only worth the price of 10 postage
stamps.
It is painful to own real estate during a period of deflation such as we have now. It is ironic to sell real
estate and buy gold because the gold cannot be leveraged as much and the gold has already gone up.
Consider the following table’s projections:
Year
2000 gold=$250; home=$250,000
2007 gold=$750; home=$600,000
2010 gold $1250; home=$400,000
2014 gold $500; home=$500,000
This chart reflects a doubling of gold prices from 2000 to 2014, which is a reasonable possibility and would
cover a 50% inflation of the dollar from 2000 to 2014.
The chart also reflects an increase in home prices of 25% from today to 2014, which is also a reasonable
possibility and would also cover a 50% inflation of the dollar from 2000 to 2014.
If one were to act on this ‘impending inflation’ today, it would be better to buy the real estate than the gold
because real estate must go up to meet the 50% inflation and gold must go down to meet that same goal.
Buy home for $40,000 down payment and make a $100,000 profit by 2014. (Don’t expect your “Gold
Newsletter” to tell you about this investment.)
Pretend that you are looking at your brain objectively. Doesn’t your mind tend to want to follow trends?
Since the trend of gold is up and the trend of home prices is down, doesn’t the emotional part of your brain
want to sell your home and buy gold instead? Emotional Mantras often rhyme. “The trend is your friend”
(Actually such a mantra is often good because human emotions dominate the markets most of the time.)
Most people’s minds are more driven by the emotional trend following than by the mathematics shown in
the table. Another reason is that the human brain doesn’t as easily perceive when something has already
been discounted. (This is why I repeat the words “has already been discounted” so often.) In this case, the
price of gold has already discounted quite a bit of future inflation. So much discounting that if a huge
amount of inflation doesn’t happen, the holders of gold are in for very large losses.
Second example predicting 300% inflation between 2000 and 2014:
2000 gold=$250; home=$250,000
2007 gold=$750; home=$600,000
2010 gold=$1250; home=$400,000
2014 gold=$1000; home=$1,000,000
This chart reflects a quadrupling of gold prices from 2000 to 2014, which is possible and would cover a
300% inflation of the US dollar from 2000 to 2014.
This chart also reflects an increase in home prices of 300% from 2010 to 2014.
Note that a gold investment in 2010 would cause a 20% loss but the holder would be able to say, “I told you
that inflation was coming and the 300% that happened between 2000 and 2014 proves that I was right.”
That person will end up with a gold star on his forehead and a feeling of pain in his wallet.
The investor who placed his $40,000 down payment on a $400,000 home will receive a $600,000 rise in
value of his home. Of course, the $600,000 is really only worth $200,000 in Year2000US$, but hey, it is
better than losing money in gold.
Please check my math and provide criticisms of my logic.
Donbot “think like a robot, be kind like a human”
Next
If you think that interest rates are going up for any reason including inflation, you should buy something at
low interest rates using as much leverage as you can get. Buy a million dollar home whose price has
deflated (dropped way down) and if inflation comes, you will have a smaller debt to pay back while the price
of the home will soar.
Example. In 1920 person ABC in Germany had 33 million Marks in his bank account. He kept it there.
Person XYZ invested his 33 million Marks on a down payment for a 330 million Mark home. After the
hyperinflation was over, person ABC had enough money to buy a postage stamp and person XYZ had a very
nice home and a mortgage which he could easily pay off because it was only worth the price of 10 postage
stamps.
It is painful to own real estate during a period of deflation such as we have now. It is ironic to sell real
estate and buy gold because the gold cannot be leveraged as much and the gold has already gone up.
Consider the following table’s projections:
Year
2000 gold=$250; home=$250,000
2007 gold=$750; home=$600,000
2010 gold $1250; home=$400,000
2014 gold $500; home=$500,000
This chart reflects a doubling of gold prices from 2000 to 2014, which is a reasonable possibility and would
cover a 50% inflation of the dollar from 2000 to 2014.
The chart also reflects an increase in home prices of 25% from today to 2014, which is also a reasonable
possibility and would also cover a 50% inflation of the dollar from 2000 to 2014.
If one were to act on this ‘impending inflation’ today, it would be better to buy the real estate than the gold
because real estate must go up to meet the 50% inflation and gold must go down to meet that same goal.
Buy home for $40,000 down payment and make a $100,000 profit by 2014. (Don’t expect your “Gold
Newsletter” to tell you about this investment.)
Pretend that you are looking at your brain objectively. Doesn’t your mind tend to want to follow trends?
Since the trend of gold is up and the trend of home prices is down, doesn’t the emotional part of your brain
want to sell your home and buy gold instead? Emotional Mantras often rhyme. “The trend is your friend”
(Actually such a mantra is often good because human emotions dominate the markets most of the time.)
Most people’s minds are more driven by the emotional trend following than by the mathematics shown in
the table. Another reason is that the human brain doesn’t as easily perceive when something has already
been discounted. (This is why I repeat the words “has already been discounted” so often.) In this case, the
price of gold has already discounted quite a bit of future inflation. So much discounting that if a huge
amount of inflation doesn’t happen, the holders of gold are in for very large losses.
Second example predicting 300% inflation between 2000 and 2014:
2000 gold=$250; home=$250,000
2007 gold=$750; home=$600,000
2010 gold=$1250; home=$400,000
2014 gold=$1000; home=$1,000,000
This chart reflects a quadrupling of gold prices from 2000 to 2014, which is possible and would cover a
300% inflation of the US dollar from 2000 to 2014.
This chart also reflects an increase in home prices of 300% from 2010 to 2014.
Note that a gold investment in 2010 would cause a 20% loss but the holder would be able to say, “I told you
that inflation was coming and the 300% that happened between 2000 and 2014 proves that I was right.”
That person will end up with a gold star on his forehead and a feeling of pain in his wallet.
The investor who placed his $40,000 down payment on a $400,000 home will receive a $600,000 rise in
value of his home. Of course, the $600,000 is really only worth $200,000 in Year2000US$, but hey, it is
better than losing money in gold.
Please check my math and provide criticisms of my logic.
Donbot “think like a robot, be kind like a human”
Next
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